CSFI Round-Table

Monday 6 April 2009

Firstly lets deal with the term offshore – OFCs are niche international finance centres also known as IFCs and to a large extent geography and location are irrelevant………………over 70 nations in the world offer some kind of preferential tax treatment to the non resident investor with the UK by far the largest followed closely by the USA – Thus the United Kingdom and the USA are the largest Offshore Financial Centre

1) What do Offshore Centres involved in International finance do?

and

2) Do they have a future?

Firstly lets deal with the term offshore – OFCs are niche international finance centres also known as IFCs and to a large extent geography and location are irrelevant………………over 70 nations in the world offer some kind of preferential tax treatment to the non resident investor with the UK by far the largest followed closely by the USA – Thus the United Kingdom and the USA are the largest Offshore Financial Centres

OFCs attract capital from where it is not needed around the world and then conduit that capital into economies where it can usefully be put to work

OFCs compete for international business in exactly the same way as do many OECD and G20 nations; on a mix of financial expertise, lower costs, attractive tax regimes, political and social stability, and robust, flexible, laws and regulations.

The off-shore centre acts as a “way station” that facilitates complex international trade and investment flows. There are no taxes or low taxes in the “way station” because tax has been paid on money before it reaches them and after it leaves. Taxes are paid at the beginning and at the end of the journey, just not along the way. In addition centres manage and warehouse wealth for high net worth individuals

That is to say …. Tax neutrality provides for no additional taxation over and above that which is due at the point of origination or the point of destination funds. It does not negate the need for the investor to discharge their tax obligations to the relevant tax administration authority

So what are the benefits of OFCs

They increase economic activity in proximate states and are a net economic benefit to countries with whom they work.

OFCs regulatory models have been cited as amongst the best globally by the IMF

But as we have seen recently controversy has surrounded OFCs and the pejorative label of Tax Haven has come into common currency

Detractors have sought to forge a linkage between OFCs and the Global Financial crisis – some question their future…………and have levelled criticisms

Are they justified? What is our response?

Lets examine these criticisms which can broadly be grouped around four headings:-

Tax Competition

Tax Transparency

Regulatory standards

Financial stability

1. Tax competition

As mentioned over 70 countries in the world offer some kind of preferential tax treatment to the non resident investor in order to attract international capital

The United Kingdom and the USA would not be able to fund significant deficits running into many hundreds of billions without offering preferential regimes including no or low taxes to the non resident, and in the case of the UK to the non domicile

Large nations cannot justifiably criticise small nations for participating in the global financial services market place on the same basis

I quote the OECD which has led tax initiatives for the club of 30 for over a decade:-

“We also agree on the need to avoid raising new tax obstacles to cross border trade and investment. Indeed, it has been asserted that, if the project can be successfully concluded, governments will be subject to legitimate market constraints and that fair tax competition may produce a strong downward pressure on tax rates.”

curtail privacy rights through the promotion of exchange of information

deny any government the right to determine its own tax policies and structures”

So tax competition is accepted as part of the economic toolkit by the leading nations

2. Tax Transparency

I would contend there are only two types of International Finance centre wherever they are located :-

Cooperative, transparent and well regulated

or

Secretive, opaque and less well regulated – more commonly known as Tax Havens

Jersey is a cooperative, transparent and well regulated centre

We have cooperated on criminal information exchange with large numbers of countries for decades

We have codified in our law that tax evasion is a crime

We have been a leading participant in the OECD Tax Information Exchange programme for the last 7 years

We have agreements modelled on the OECD TIEA which meet the highest standards of modern information exchange with a number of countries – including with the USA, UK, France and Germany.

We have voluntarily entered into the EUSD

We have no banking secrecy, no rule of double incrimination, no bearer shares,

and

We insist on beneficial ownership information and robust business take on procedures

So Jersey is more tax transparent than many leading OECD nations.

As the OECD have themselves said “Guernsey, Jersey and the Isle of Man have consistently supported the work of the OECD…with Jersey and the Isle of Man taking an active and constructive role in the work of the Global Forum’s Sub-Group on Level Playing Field Issues.”

Indeed last week Jeffrey Owens, Director of the OECD’s Centre for Tax Policy SAID: “The positive outcomes of the [Sub-Group’s] work, as well as the lead that these jurisdictions have taken in signing tax information exchange agreements, have played a big part in the developments in favour of greater transparency that we are now seeing around the globe,”

3. Regulatory Standards

Some of our detractors say that we are poorly regulated

Steven Platt has/will speak to this topic – but suffice to say that numerous international fora have reviewed our centre and found that we comply with the highest international standards of corporate governance and sound regulation.

Positive citations drawn from evidentially based reviews have been received from:

The Financial Stability Forum, The FATF, The IMF, The FSA, and OGBS – We are also admitted as members of IOSCO and the IAIS and recognised by all as operating to the highest international standards

Evidence of the compliance of OFCs vs OECD countries is contained in recent research by Professor Jason Sharman, a political scientist at Australia’s Griffith University as featured in this weeks Economist

“The most egregious examples of banking secrecy, money laundering and tax fraud are found not in remote alpine valleys or on sunny tropical isles but in the backyards of the world’s biggest economies”

“In practice OECD countries have much laxer regulation on shell corporations than classic tax havens,” Mr Sharman concludes. “And the US is the worst on this score, worse than Liechtenstein and worse than Somalia.”

The IMF have also attested to this view “ “……..on average, OFC’s meet supervisory standards superior to those of other jurisdictions”